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The Zacks Building Products – Wood industry has been navigating through a challenging landscape comprising increased construction costs, potential delays in housing projects, and a strain on affordability for consumers. Additionally, the tariffs may prompt retaliatory trade measures, further complicating international trade relations. Spending on home repair and remodeling (R&R) activities has declined from the highs seen during the pandemic due to elevated mortgage rates. The rise in rates has made homeownership unaffordable for many potential buyers in the U.S. housing market, creating challenging demand conditions for companies in the wood industry.
However, there is still a strong need for investments in critical replacements, addressing home performance issues, and modernizing the country’s aging housing stock. Additionally, increased funding for infrastructure and carbon/ESG-related projects has been a positive development. While concerns persist regarding high mortgage rates and cautious consumer spending, effective cost management, ongoing product innovation, and strategic acquisitions are expected to support industry players such as PotlatchDeltic Corporation PCH and Worthington Enterprises, Inc. WOR.
Industry Description
The Zacks Building Products – Wood industry includes forest product companies and manufacturers of lumber as well as other wood products used in home construction, repair and remodeling along with the development of outdoor structures. Companies in the industry design, manufacture, source and sell flooring products like tile, wood, laminate, vinyl, and natural stone flooring products, as well as decorative and installation accessories. The industry players are also involved in the manufacturing and distribution of wood and plastic composite products, along with related accessories, mainly for residential decking and railing applications. The industry also includes timberland real estate investment trusts, or REITs.
4 Trends Shaping the Future of Building Products - Wood Industry
High Rates, Trade Policy and Tariffs: The industry’s prospects are highly correlated with the U.S. housing and the R&R market (considered one of the largest in terms of lumber demand) conditions. The U.S. housing market remained constrained by elevated interest rates and subdued consumer confidence. Buyer urgency was low in both new and existing home markets, and large public builders continued to use rate buydowns to stimulate demand. Economic uncertainty and ongoing weakness in home sales and building material sales are limiting residential remodeling.
Meanwhile, the reimplementation of tariffs on Canadian softwood lumber by President Trump in 2025 presents significant implications for the U.S. wood industry. While these measures aim to bolster domestic lumber production, the U.S. industry may struggle to meet the sudden surge in demand, potentially leading to supply shortages and further price inflation. Currently, Canadian lumber imports face a 14.54% duty, with potential increases to 34.5% or higher anticipated later this year. Given that Canada supplies approximately 30% of U.S. softwood lumber, these heightened tariffs are poised to escalate material costs, particularly impacting the housing sector. The National Association of Home Builders estimates that such tariffs have already added around $10,900 to the cost of constructing a new home.
Rapid Lumber Market Swings: Historically, volatility in lumber prices has been a major concern for the wood industry. Any unusual rise in the cost of lumber products sold by primary producers increases the cost of inventory and limits margins on fixed-priced lumber products. Yet, a decline in costs eats into profits as products sold are indexed to the current lumber market. Meanwhile, the timberland business is governed by federal rules and state forestry commissions, which are subject to frequent changes, thereby affecting businesses. Due to the very nature of their properties, timberland REITs are required to follow eco-friendly mandates in their trade.
Higher Spending on Infrastructure & Carbon/ESG Projects: The projected rate cuts are poised to increase affordability, stimulate residential activity and set the stage for growth in the wood industry. Additionally, government initiatives such as the Infrastructure Investment and Jobs Act (IIJA) and the Inflation Reduction Act (IRA) are expected to boost infrastructure spending. This emphasis on modernization and clean energy is anticipated to drive growth for companies within the wood sector.
Acquisitions, Product Innovation & Efficient Cost-Reduction Strategies: The companies also bank on acquisitions and divestitures to expand and improve portfolio quality. New products continue to be an important top-line driver for the industry players. Also, efforts to introduce products are likely to have helped the players. Again, in a bid to reduce costs, companies have been reducing the cost structure of their facilities through the sale or shutdown of underperforming units and manufacturing facilities, as well as investments in technology. Also, the industry players have been focusing on operational excellence, comprising merchandising for value, harvest, and transportation efficiencies and boosting harvest to capture seasonal and short-term opportunities.